CEOs Feel Pressure to Take on More Risk, See Risks Their Companies Face Increasing

Supply chain integrity ranks among top risks for global enterprises in PricewaterhouseCoopers Private Company Trendsetter Barometer; top execs want to improve risk-related processes

Bookmark and Share
New York — July 16, 2010 — As private company CEOs begin to feel more confident about the economy, nearly half (48 percent) of the top executive in a recent survey say they feel pressure to assume greater risks in pursuit of growth, and nearly half of the CEOs at global enterprises see supply chain integrity as a top risk over the next few years, according to consulting firm PricewaterhouseCoopers.

Nearly nine in ten (87 percent) of the CEOs surveyed for PwC's "Private Company Trendsetter Barometer" believe they are already taking sufficient risks to capitalize on opportunities, highlighting a contradiction between current perception and future expectations.

Additionally, a majority of respondents (77 percent) believe their companies' risk management function has been effective in detecting financial risk during the past two to three years, with 60 percent feeling very confident that they will be able to effectively manage that category of risk over the next few years (36 percent are somewhat confident).

Approximately two out of ten (20 percent) cited some misgivings about their processes, either lack of effectiveness (9 percent) or a mixed picture (11 percent).

CEOs Want to Improve Processes

The Trendsetter Barometer tracks the business issues and standard industry practices of leading, privately held U.S. businesses. It incorporates the views of 235 chief executive officers (CEOs/CFOs), including 137 from companies in the product sector and 98 in the service sector, averaging $178.4 million in revenue/sales, and including large, $300 million-plus private companies.

While the majority of respondents in the latest survey said that their risk management functions have been effective, 84 percent of respondents feel it is important that they continue to improve their risk management processes to address increasing risks.

This could be in response to increased risk forecasts, with 37 percent of respondents expecting the risks their companies face over the next two to three years will be greater than the risks they faced over the last few years. Forty-five percent think the risks will remain about the same.

Top areas (cited as extremely or very important) for improvement include:

  • Quality and timeliness of information
  • Availability of information
  • Quantifying risks
  • Culturally embedding risk management
  • Indentifying and measuring the potential benefits of risk
  • Overcoming conflicting corporate priorities
  • Integrating risk management with business processes
  • Lack of risk-management knowledge/skills across the company

"It's interesting that the majority feel their functions are effective, yet also believe they need to improve some important areas of the risk management process," says Ken Esch, partner in PricewaterhouseCoopers' Private Company Services practice. "This just shows how forward-looking private company executives are: acknowledging the economy and their business plans are changing and taking steps now to ensure future business stability."

International Marketers More Confident

Interestingly, international marketers (companies operating abroad) are more confident than their domestic counterparts about managing operational risk (52 percent very confident versus 44 percent). And compared with their domestic-only peers, international marketers are also less concerned about risks around financial misrepresentation, high financial leverage and asset misappropriation.

Perhaps not surprisingly given the complexity of global supply chains, top executives at global organizations were more concerned about risks to supply chain integrity than their counterparts at domestic-only enterprises, whose top concern was around risks related to mergers and acquisition. (See table following.)

Percentage of companies concerned about
these risks over the next 2-3 years
    Type of risk
International marketers
  • M&A
  • Supply chain integrity
  • New products & services
  • High financial leverage
  • International market expansion
  • Financial misrepresentation
  • Cybercrime
  • Product piracy
  • Asset misappropriation
  • Monetary hedging
* 62% for U.S. companies operating in emerging markets

"Assessing potential foreign operations or business partners, and the attendant risks, is often a challenge," says Esch. "Domestic companies that haven't made such an assessment — and many of them might not have the in-house expertise to do so — are less likely to have as full an appreciation of international-market risks as companies that are actively doing business abroad."

This may account, in part, for why international marketers are somewhat more confident than domestic-only companies (some of which may be contemplating international expansion) about the ability to respond to and mitigate risk (39 percent very confident versus 45 percent).

"Now that companies have weathered the economic storm, they're looking to grow again," says Esch. "But many of them feel the domestic market is tapped out, so they are looking for growth opportunities in international markets. That generally means taking on more risk, especially for companies entering foreign jurisdictions for the first time — places where they may know little about the local business practices or regulations."